Scotland’s private sector economy experienced a downturn in December, ending an “impressive” 11-month streak of growth, according to the latest survey by the Royal Bank of Scotland.
This decline marked the second-steepest contraction among the UK’s 12 nations and regions, with only north-east England, London, and the East Midlands showing growth during the month. North-west England recorded the sharpest drop in activity.
Employment Falls After Nearly Two Years of Growth
The survey revealed a decline in private sector employment in Scotland in December, breaking a 22-month period of consistent growth. The manufacturing sector was the primary driver of job losses, although the rate of employment decline in Scotland was less pronounced than across the UK as a whole.
Judith Cruickshank, Chair of Royal Bank’s Scotland board, commented: “After an impressive 11-month growth period, with an average business activity index reading of 52.5, 2024 concluded with renewed declines across Scotland’s private sector.
Businesses are adopting a more cautious outlook for the year ahead, partly due to three consecutive months of falling new business volumes.
“There has also been a resurgence in job cuts as firms adjust staffing levels to align with reduced demand. Whether this proves to be a temporary fluctuation remains to be seen.”
Business Activity Index Highlights Sharp Contraction
The business activity index for Scotland, which tracks monthly changes in manufacturing and services output, dropped from 51.1 in November to 46.9 in December on a seasonally adjusted basis.
Falling below the critical 50-point threshold that separates expansion from contraction, this reading signalled the fastest decline in business activity since October 2023.
Employment Trends Show Modest Declines
While the rate of job reduction in Scotland was less severe than the UK average, Royal Bank noted that the downturn was primarily driven by manufacturing.
Employment in service sectors also cooled, with businesses citing reduced activity, redundancies, and non-replacement of voluntary leavers as key factors.
Despite these challenges, Ms Cruickshank expressed cautious optimism, suggesting that time will reveal whether this decline is a temporary adjustment or indicative of broader economic pressures.
As Scotland’s private sector navigates these headwinds, businesses will be closely monitoring the early months of 2025 for signs of recovery or further contraction.
